Saturday, January 26, 2008

It really is amusing, racial spoils.Honesty, common sense, rule of law. None of that matters.The maintenance of a system which by its very definition is an insult to equality, is all that matters.This is part of a column by George F. Will of the Washington Post on an upcoming ballot initiative in Missouri.

Missouri law requires the secretary of state to draft a summary of an initiative, which appears on the ballot "in the form of a question using language neither intentionally argumentative nor likely to create prejudice either for or against the proposed measure." The following, not the MoCRI language quoted above, is what the state's Democratic secretary of state and Democratic attorney general proposed to put on the ballot:

"Shall the Missouri Constitution be amended to: Ban affirmative action programs designed to eliminate discrimination against, and improve opportunities for, women and minorities in public contracting, employment and education; and allow preferential treatment based on race, sex, color, ethnicity, or national origin to meet federal program funds eligibility standards as well as preferential treatment for bonafide qualifications based on sex?"

Anti-trust logic is amazing.Consumers paying more to protect inefficient businesses. The infamous 9th Circuit steps into it promoting its own socialist agenda.

Supreme OpportunityJanuary26, 2008; Page A10

Long ago, in a legal galaxy far, far away, American courts saw antitrust law as a way to protect competitors from, well, the competition. These days everyone outside the Ninth Circuit Court of Appeals concedes that if antitrust has any claim to legitimacy, it lies in its ambition to maximize consumer welfare, not competitor protection.

As for that Ninth Circuit, well, there's a reason it's the circuit most often reversed by the Supreme Court. And it has offered the High Court a chance to do it again in AT&T v. linkLine, if it will take the case. This week the Court asked the U.S. Solicitor General to provide his views on the case, with the goal of deciding whether to hear AT&T's appeal from the Ninth Circuit, which deployed a long-discredited antitrust theory to uphold a case against the phone giant.

LinkLine buys DSL capacity from AT&T, which it then resells to consumers. This puts linkLine in the sometimes-awkward, but not unheard-of, position of being AT&T's customer in the wholesale market but its competitor in the retail market. LinkLine's lawsuit, however, alleges that the margin between the wholesale price that linkLine pays AT&T and the retail price that AT&T charges its customers is too small for linkLine to make a profit -- which is known in antitrust jargon as a "price squeeze."

In recent years the courts have largely rejected the notion of a price squeeze as a legitimate antitrust claim -- except in special circumstances. The problem is that a price-squeeze complaint amounts to telling one company -- AT&T in this case -- that it is charging consumers too little. And forcing AT&T to raise its retail prices might help linkLine, but it would hurt consumers, who would be forced to pay more for Internet access in the name of preserving a "competitive" market. Our courts used to think that punishing consumers to keep competitors alive was normal, reasonable behavior. Antitrust regulators in Europe still think this way. And so, apparently, does the Ninth Circuit, which may explain why it ruled that linkLine's case should go forward.

But the Supreme Court has rejected this kind of argument before, most recently in the 2004 Trinko case. In addition to the dubiousness of raising prices to assist less-efficient competitors, the High Court deemed it misguided to complain about the wholesale price when the wholesaler was free not to sell to the competitor in the first place. The only way to justify this kind of competitor-protection is by arguing that the courts, not the markets, are the right place to determine how many players a particular industry "needs," and to order everyone in that industry to behave accordingly.

As we say, this sort of industrial planning is still popular in Europe, but in the U.S. it was consigned to history until the Ninth Circuit tried to resurrect it. We'd argue that this difference plays some part in the greater economic dynamism the U.S. enjoys over Europe. For the sake of its precedent in Trinko as well as the American economy, the Supreme Court should take the linkLine case and hand the Ninth Circuit one more well-deserved reversal.

Friday, January 25, 2008

I am always happy to get some of my own money back, Stimulus Package, so why complain?

Maybe I am just tired of being treated like a fool.

Offer me something of substance rather than some pre-election meaningless snow job to be forgotten later.

Re-Election StimulusJanuary 25, 2008

Nothing concentrates a politician's mind quite like a 30% approval rating, and for proof look no further than the "stimulus" package agreed to yesterday by both ends of Pennsylvania Avenue. We doubt it'll help the economy much, if at all, but then the real point of this exercise is to stimulate voters into absolving the political class of any blame for a recession.

The result is an almost perfect political stimulus: a one-year "middle-class tax cut" for Americans in the most populous demographic group, a few tax goodies to sweeten the cash flow of certain current businesses, and a boost to the business of those world-class lobbying firms and campaign contributors, Fannie Mae and Freddie Mac.

For the sake of bipartisan accord, the White House dropped any demand to make its previous tax cuts permanent, while House Democrats gave up for now on some of their spending plans, such as increasing the incentive to stay out of work longer by extending unemployment benefits. Senate Democrats will try to add the latter.

The GOP also agreed to make the tax rebates of as much as $600 per individual filer and $1,200 a couple "refundable," which means they will go to 35 million voters who don't pay income taxes. Yes, many of those people do pay the Social Security payroll tax, though for most that is already offset by the also-refundable earned income tax credit. So this will be a bonus federal subsidy payment. And by the way, if you make more than $75,000 a year ($150,000 for a couple), your tax cut starts to vanish fast, apparently because you are already too productive to deserve "stimulation." Congratulations.

As for the economics, oh my. The most this temporary tax cut will do is goose consumer spending for a quarter or two this year. Since the IRS is saying it won't be able to cut the checks until midyear, any recession might well be over, if it even begins. The money to pay for these rebates has to come from somewhere, which means from other taxpayers or from bondholders who lend money to the Treasury. Either way, Congress and the White House are taking money from someone to pass out to someone else. The income effects are thus a wash, as the economists put it, while the substitution effects (higher taxes on the best income producers to finance consumption among the lowest) are negative.

More generous expensing and depreciation rules for 2008 will at least help the cash flows of many businesses. And this will help investment this year, though in part by borrowing that investment from next year. Then again, the election is this year.The nearby chart shows what happened to the economy after the last tax rebate exercise in 2001. Modest growth resumed for a while, but that "stimulus" did little to lift the animal spirits of business or to spur more investment and job growth. The big turnaround didn't take place until after the 2003 tax cuts, which made immediate and long-term (multi-year) reductions on investment and marginal income tax rates.

As for Fannie and Freddie, the troubled mortgage giants will be allowed to raise the limit on loans they can buy to $625,000 from $417,000. The loan limit for the Federal Housing Administration will rise even higher, to $725,000 from $362,000. The feds are thus extending implicit and explicit federal loan subsidies to a far larger pool of mortgage borrowers. This means that Congress and the White House will be providing mortgage subsidies to some of the same people they consider too "rich" to receive tax relief. Go figure.

"I got run down by a bipartisan steamroller," said Treasury Secretary Hank Paulson, in explaining the new housing limits. This means Fannie and Freddie now have a political blessing to expand their market share, despite their ferocious resistance to tighter regulation after their multi-billion-dollar accounting frauds.

Perhaps the best that can be said of these Beltway antics is that they won't do much harm -- the housing credit guarantees aside. Americans lucky enough to qualify should enjoy this little windfall while they can, because the politicians are already planning to take it all back next year. After they're re-elected.